Jeff Campbell
Vice Chairman and Chief Financial Officer at American Express
Well, thank you, Steve, and good morning, everyone. It's great to be here to talk about our first quarter results, which reflect a solid start to 2022 and are tracking in line with the guidance we gave for the full year and with our aspiration to build growth momentum beyond 2022.
Starting with our summary financials on Slide 2. Most importantly, our first quarter revenues were $11.7 billion, up 31% on an FX-adjusted basis, consistent with the momentum we have built and our longer-term growth aspirations. Our reported first quarter net income was $2.1 billion with earnings per share of $2.73.
As you know, year-over-year comparisons of net income have been challenging for the industry over the past two years due to the volatility that the pandemic has caused in credit reserve adjustments. For that reason, we thought it would be a helpful supplemental disclosure this quarter to include our pretax pre-provision income. That number was $2.7 billion in the first quarter, up 16% versus the comparable number in 2021, reflecting growth in our core earnings.
So now let's get into a little more detailed look at our results, starting with volumes. As you can see in our slides, we have mostly gone back to reporting our volumes on a year-over-year basis, moving away from the comparisons to 2019 that we have done in recent quarters. We think that returning to a focus on year-over-year comparison gives you a better view of the momentum we have built and the momentum we are seeking to maintain as we look towards our longer-term growth objectives.
Starting on Slide 3. Total network volumes and Billed business were both up over 30% year-over-year in the first quarter on an FX-adjusted basis, strengthening further from the strong growth rates seen in the past few quarters. And as Steve highlighted, intra-quarter, while Omicron slowed growth in January and early February, we then saw a strong acceleration in March, with that month achieving our highest ever level of monthly Billed business. And I would point out that the majority of this high level of growth was driven by the momentum we have built and the number of transactions flowing through our network with only a modest impact from inflation.
Now as I talked about at our Investor Day last month and as Slide 4 reiterates, the majority of our Billed business is spending on goods and services from our consumer and small and medium-sized enterprise customers. And as you can see on Slide 5, goods and services spending remained robust in the first quarter, with year-over-year growth reaching 21%, slightly above the 2021 exit rate. This momentum is from strong growth in online and card-not-present spending that continued in the first quarter even as offline spending growth strengthened, demonstrating the effect of the structural shift in online commerce that we've seen accelerated by the pandemic.
And while T&E spending is a smaller portion of our total billings, you see on Slide 6 that it is now strongly supporting our growth momentum, with overall T&E spending growing 121% year-over-year. T&E spending did show a dip in January and early February due to the Omicron variant, but spending then rebounded tremendously, reflecting pent-up travel demand and essentially reached 2019 levels for the first time since the start of the pandemic in the month of March. And this kind of T&E spending growth has continued right into early April.
When you then break these spending trends down across our consumer and commercial businesses, as we begin to do on Slide 7, there are a few other key points I'd suggest you take away. First, our millennial and Gen Z customers continue to drive our highest consumer growth with their spending up 56% year-over-year and spending growth from all other age cohorts increasing as well in the quarter. Also of note, global consumer T&E volumes overall were back above 2019 levels as of the first quarter, led by the growth in the U.S.
Second, our commercial businesses strategic focus on helping SME clients run their businesses continues to drive strong growth in overall SME spending up 30% in the first quarter with acceleration in growth across both the U.S. and international. While a smaller part of our overall growth is in this segment, I would point out that our large and global corporate clients have begun to show signs of business travel recovery, especially in the latter part of the quarter with a year-over-year growth rate for the quarter of 42%.
So overall, we are pleased with the growth momentum we see across the board in our spending volumes, which is tracking in line with our expectations for both the year and for our long-term expectations.
As you then move to receivable and loan balances on Slide 9, you see that our growth momentum has brought our ending loan balances roughly back to pre-pandemic levels in this quarter. As I said at Investor Day, the interest-bearing portion of our loan balances also continues to increase quarter-over-quarter, but is still below 2019 levels as paydown rates remain elevated due to the liquidity and strength amongst our customer base.
This liquidity and strength is also, of course, evident as you turn to credit and provision on Slides 10 through 12, as we continue to see extremely strong credit performance. Card Member loans and receivables write-off and delinquency rates remain well below pre-pandemic levels and in line with our expectations, but they did tick up a bit this quarter.
As you then turn to the accounting for this credit performance, you will see that this quarter, we released a large part of the remaining credit reserves we built to capture the significant uncertainty of the pandemic, which lacked a comparable precedent. As we have seen a sustained recovery from the pandemic-driven economic shutdowns, we have been able to reduce pandemic-driven reserves. While there clearly is still plenty of uncertainty today related to the current geopolitical and inflationary environment, we believe that our CECL models are better able to capture our expected credit risk related to these uncertainties to determine the appropriate level of reserves required. Our strong credit performance combined with the adjustment to our reserves drove a $33 million provision expense benefit for the first quarter as the low write-offs were fully offset by the net reserve release as shown on Slide 11.
As you see on Slide 12, we ended the first quarter with $3.1 billion of reserves, representing 3.3% of our loan balances and 0.1% of our Card Member receivable balances, respectively. This is well below the reserve levels we had pre-pandemic, given the strong credit performance we've seen.
Going forward, as loan balances, especially the interest-bearing portion of loan balances, build more meaningfully, we expect delinquency and loss rates to continue to slowly move up over time but remain below pre-pandemic levels this year. We would also expect to end the year with a higher level of reserves on our balance sheet than where we ended this quarter, although there could be some quarterly volatility in reserve adjustments throughout the year.
As we move to revenue on Slide 13, I do need to explain some changes we've made to our revenue reporting before moving on to results. As a reminder, we began reporting processed volumes in the first quarter of last year to better differentiate between volume and cards we issue versus those who are we play more of a network role. For added transparency, we now have moved all of the revenues associated with these volumes out of discount revenue, other fees and commissions, other revenue, and combined them into a newly created line called Processed Revenue, which you can then match up against our processed volumes.
We have also consolidated the remaining balances from other fees and commissions and other revenue into one line named Service Fees and Other Revenue with the largest components of this line item being service fees earned from merchants like those generated by our loyalty coalition business, and foreign currency-related revenues, such as FX conversion fees. This revenue line was up strong with 42% growth year-over-year in the first quarter, as you will see on the next slide. This growth was primarily driven by the uptick we have seen in travel-related revenues. And as I said at Investor Day, we expect this to be a pandemic recovery tailwind throughout this year.
You will see we have recast prior periods in the disclosures that accompany our earnings release. A description of these reporting changes and definitions for key terms will also be included in our Form 10-Q.
With these changes out of the way, let's move to our actual revenue performance beginning on Slide 14. Total revenues were up 29% year-over-year in the first quarter with broad-based revenue growth across all lines. Our largest revenue line, discount revenue grew 38% year-over-year in Q1 on an FX adjusted basis, as you can see on Slide 15.
This growth was driven by both our sustained growth in goods and services spending and continued recovery of T&E spending. Net Card fee revenues were up 16% year-over-year in the first quarter on an FX-adjusted basis, with growth reaccelerating versus the 10% to 11% growth rate seen in 2021 as you can see on Slide 16.
As I said at Investor Day, this growth is largely driven by bringing new accounts onto our fee-paying products as a result of the investments we've made in our premium value propositions and the continued attractiveness of those value propositions to both prospects and existing customers.
This quarter, we acquired 3 million new cards with acquisitions of U.S. consumer and U.S. business Platinum Card members reaching record high, as Steve noted earlier, demonstrating great demand for our products, especially our premium fee-based products.
Moving on to net interest income. On Slide 17, you will see that it surpassed 2019 levels for the first time this quarter, mainly driven by lower interest expense, in part due to our increased mix of deposits, which is generally our lowest cost funding source, particularly in today's rising rate environment.
First quarter year-over-year net interest income growth of 20%, while very strong, remains slower than the growth in our lending AR as revolving loan balances continue to rebuild, and so we expect net interest income to be a pandemic recovery tailwind to our revenue growth in 2022.
To sum up, on revenues on Slide 18, we're tracking well against our expectations. And looking forward, we still expect to see revenue growth of 18% to 20% for the full year of 2022.
So all of the revenue momentum we just discussed, was driven by the investments we've been making in marketing, value propositions, coverage, technology and talent. And those investments show up across the expense lines you see on Slide 19.
Starting with variable customer engagement expenses, the strong spending growth and customer engagement that Steve discussed earlier is driving the growth in these expenses lines. In total, these costs came in at 41% of total revenues for the first quarter and are tracking in line with our expectations for variable customer engagement costs to right around 42% of total revenues for the full year.
On the marketing line, we invested $1.2 billion in the first quarter, on track with our expectation to spend around $5 billion in 2022. We feel really good about the strong momentum of our new card acquisitions, as I talked about earlier and, more importantly, about the revenues from those acquisitions, which is trending significantly higher than what we saw pre-pandemic. We continue to see great demand for our products across a wide range of attractive investment opportunities even beyond those we are currently funding.
Moving to the bottom of Slide 19. Operating expenses were $3.1 billion in the first quarter, tracking with our expectation to spend a bit over $12 billion for the full year. While opex was up 26% year-over-year this quarter, it is important to note that we were growing over a benefit of $384 million in net mark-to-market gains in our Amex venture strategic investment portfolio from the first quarter of last year, included in the opex line.
I would point out that while I said earlier that inflation is having some modest positive impact on volumes, it is also putting some pressure on our operating expenses, but we'll have to wait to see how material any impact might be for the full year. In any event, I still expect to have far less growth in opex compared to revenues and see these costs as a key source of leverage.
Turning next to capital on Slide 20, we returned $1.9 billion of capital to our shareholders in the first quarter, including common stock repurchases of $1.5 billion, and $394 million in common stock dividends on the back of strong earnings generation. Our CET1 ratio was 10.4% at the end of the first quarter, within our target range of 10% to 11%. We plan to continue to return to shareholders the excess capital we generate while supporting our balance sheet growth.
That brings to our growth plan on Slide 21, and then we'll open up the call for your questions.
For the full year 2022, we are reaffirming our guidance of having revenue growth of 18% to 20% and earnings per share between $9.25 and $9.65. We continue to expect the amount of our volumes, revenues and core earnings to sequentially strengthen throughout the year, driven in part by our pandemic recovery tailwinds.
As I mentioned earlier, there's clearly uncertainty as it relates to the current geopolitical and inflationary environment. As we sit here today, despite that uncertainty, the combination of our investments, successful execution of our strategy and a number of structural shifts have all come together to deliver our strong first quarter results and build growth momentum. We remain committed to executing against our new growth plan and running the company with a focus on achieving our aspiration of delivering revenue growth in excess of 10% and mid-teens EPS growth on a sustainable basis in 2024 and beyond.
With that, I'll turn the call back over to Vivian.
